Legal Definitions - bankruptcy clause

A bankruptcy clause, also known as an ipso facto clause, is a provision in a contract that outlines the consequences of one party's bankruptcy. This clause is included in contracts to protect the interests of the non-bankrupt party.

For example, a lease agreement may include a bankruptcy clause that states that if the tenant files for bankruptcy, the landlord has the right to terminate the lease and evict the tenant. This protects the landlord's interests in the property and ensures that they can find a new tenant to occupy the space.

Another example is a loan agreement that includes a bankruptcy clause. If the borrower files for bankruptcy, the lender may have the right to accelerate the loan and demand immediate repayment. This protects the lender's interests in the loan and ensures that they can recover their funds.

Overall, a bankruptcy clause is an important provision in contracts that helps to protect the interests of the non-bankrupt party.